Payday loan companies have been growing their market share at an alarming rate since the financial crash five years ago. In response Airdrie Savings Bank has launched its own short-term loan. Katy Maydon talks to CEO, Rod Ashley about the new product
Airdrie Savings Bank (ASB), the UK’s smallest bank and the last remaining independent savings bank, has announced the launch of ‘express loans’, short-term loans for existing customers.
The express loans offer £50 – £500 over a repayment period of six months. ASB will only lend to existing customers who have had an account with the bank for a year.
The announcement has put pressure on payday loan giants, whose APRs rise up to 6,000%, in comparison to the 27% ASB is offering.
For example, someone borrowing £100 over 28 days would pay an extra £1.15 interest. There are no arrangement or early repayment fees.
Established in 1835, ASB operates a network of eight branches, seven of which are located in its Lanarkshire heartland, to the east of Scotland’s largest city, Glasgow.
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By GlobalDataRod Ashley, CEO at ASB, talks to RBI about how the express loan initiative is a good move for the bank’s customers.
RBI: What kind of customers are you expecting to make use of these new short-term loans?
Rod Ashley (RA): We saw that there was no lending of this kind in the vicinity. Lots of customers can benefit from the service, customers who are not in the same market as personal loan or home loan customers, it’s a much more community-based product. Customers had been coming in and asking for this kind of service and as bank is heavily involved in financial inclusion we moved on the requests.
So far we’ve had a wide response: largely from what I call ‘alarm clock Britain’, those people who work Monday to Friday, nine to five. For example, the car breaks down or the washing machine, people need money for emergencies: it’s a service as well as a product.
RBI: There’s been a vast amount of talk recently in the media about payday loans; do you see this service as an alternative?
RA: It can be used for that but it’s not the sole purpose. For some customers it does provide alternative. Payday lenders are a separate challenge at the moment: just compare APR rates. Payday loans can become really expensive, they roll over, interest adds up and they become difficult. Someone told me you can start at one end of a shopping mall with your mobile phone and by the time you reach the other end you can be approved for a loan, they’re very dangerous. Here we need to know where the money is going.
RBI: What are the repayment terms? How flexible can your customers be?
RA: We are ‘kind of’ saying 6 months but if customers feel they can pay back in three or four they can. If you are left with a few more pounds at the end of the month we are happy for you to come in and put them against the loan. There are no early re-payment charges.
RBI: What kinds of regulations are set for the loans and how will you check a customer can pay the loan back?
RA: We looked at the procedures for personal loans and picked out key affordability criteria. We work with customer to get that sorted, it’s all conducted through branch channel. It’s a very personal process: lots of face-to-face contact. Of course there has to have an affordability aspect but there different scenarios depending on what the loan is paying for, for example a customer who may be evicted from their home and a customer who is looking to borrow holiday money. As a small bank we know many of the customers personally, this helps us build a personal relationship that helps with decisions in this process.
RBI: How are you promoting the loans?
RA: Initially through branch channels, we will gradually push the information out. We have already had a review meeting and are comfortable with how it’s started.
RBI: Why are the loans only available to existing customers?
RA: Customers are required to hold a current account for a year before they can apply for the loans. This is due to credit; it introduces an element of loyalty. We adhere to responsible lending rules and regulations and need to check customers have the available credit. We will say that new customers can come in and get started with us, talk to us. I think the criteria is going to be reviewed in the future, see who is coming in and who we are helping then possibly change these regulations.
RBI: Is this something that you think will bring in new customers?
RA: Possibly, however the service is initially pitched at existing customers. We are primarily savings bank and because of that another aspect of the loan service is to help our existing customers to save. Customers pay a small amount every month, once the loan is paid off the money transfers into a savings account, instead of automatically being cancelled. Customers become used to that small amount not being available to them, this small amount of savings each month means that when another emergency arises the customer has their savings and there is no need for another loan.
